From Genocide to the road of Prosperity

The Rwandan Renaissance

By DALIBOR ROHAC

Strange as it may sound, Singaporeans are a common sight in Rwanda. On a recent trip to the proverbial heart of African darkness, I ran into a sizeable group of them having lunch in one of Kigali’s international hotels. They were reviewing potential business opportunities, so they told me. Later that day, I visited the Rwanda Development Board, an organization that fosters private investment in Rwanda. While there, I casually picked up a PowerPoint presentation from a training session for Rwandans by the Singapore Cooperation Enterprise. As in Singapore, the slides were swiftly confiscated; apparently they contained “confidential information.”

Just like Singaporeans, Rwandans are not shy about their ambitions. Deeply traumatized by the genocide of 1994, they have made enormous progress in the past decade distancing their country from its less-than-glorious past and also from the many economic, political and social troubles still pervasive in sub-Saharan Africa. Rwanda today is optimistic, forward-looking and striving hard to become the service and IT hub for the whole of East Africa. Yet, unlike Singapore, Rwanda is poor, landlocked and surrounded by unreliable and corrupt neighbors. What is more, Rwanda faces the limits of a development model that relies significantly on enlightened personal leadership.

It should almost go without saying that Rwanda’s history is markedly different from Singapore’s, and not in a generally benign way. By the 15th century, a small number of kingdoms emerged comprising various groups of Bantu speakers, including those who have come to be known as Hutus and Tutsis. In 1890, the Brussels conference signed Rwanda and Burundi over to Germany as part of its sphere of colonial influence in Africa, in exchange for Berlin’s abandoning all claims on neighboring Uganda. German colonization settled in lightly, barely interfering with local governance structures. The Germans, practicing up for Nazi master race times to come, were fascinated by what they believed to be racial differences between the various social groups in Rwanda and Burundi.

The World War did not spare Rwanda: The Germans fought the British and the Belgians there at great human and material cost to the indigenous population. After the war the country, together with what is today Burundi, fell under a Belgian mandate called Ruanda-Urundi. During this time, Belgian authorities exacerbated the tensions between Hutus and Tutsis in both countries, for example, by introducing identity cards featuring information about the holders’ supposed ethnic group, an act which ramified all the way to the 1994 genocide. The colonizers tended to grant preferential treatment to the Tutsis, whom they believed to be of superior Indo-European descent. Later, a new and more egalitarian-minded generation of missionaries sided with the Hutus, as did, interestingly enough, many Flemish-speaking Belgian administrators, laying the foundations of a virulent ideology of Hutu Power.

The first large-scale massacre of Tutsis accompanied the country’s independence in 1959. Post-colonial Rwanda, run by the kleptocratic regimes of Presidents Juvénal Kayibanda and Grégoire Habyarimana, continued to be marked by intermittent periods of state-sponsored violence against the Tutsis. However, few predicted the mass slaughter of 1994 following Habyarimana’s assassination. About a million people out of a population of 7.3 million perished, and the genocide destroyed most of the country’s modest stock of capital. Close to a million people, too, are thought to have been directly involved in the killings.

After 1994, the Rwandans had to start virtually from scratch, deeply scarred and ashamed of their immediate past. They have done surprisingly, almost shockingly, well—indeed, well enough to justify even a casual comparison with Singapore.

The histories of Singapore and Rwanda may differ, but to a visitor the similarities are striking. Arriving at Kigali Airport, one is warned that plastic bags might be confiscated as their use has been made illegal in the country. I, for one, was immediately reminded of similar injunctions against chewing gum or carrying durian fruit on Singapore’s metro. Likewise, Kigali is remarkably clean, with manicured lawns and carefully maintained palm trees alongside new, well-marked roads. (Rwandans certainly know their landscaping.)

The two countries also share a sense of order and respect for the law and authority. Unlike most other Africans and certainly most Middle Easterners, Rwandans actually queue. They also consider corruption unacceptable. Much of this might very well be the result of government policies, but the general deference to authorities long predates the current regime and its reforms. As Rwandans not infrequently point out, it was blind obedience to authority—embodied by reverence for the infamous broadcasting of the Radio Télévision Libre des Milles Collines—that contributed to the horrific spring of 1994.

Singapore and Rwanda also share a very technocratic, efficiency-driven system of government that has little patience for the long deliberations and logrolling characteristic of Western democracies. On the one hand, this means that Rwanda is not an open democracy. There is little open discussion about public policy issues, and no organized opposition to speak of. On the other hand, the government appears committed to adopting the best policy practices from around the world. It can act quickly and effectively, without having to navigate special interest pleading. Unlike other leaders in a similar position, President Paul Kagame is intellectually curious and appears to be serious about transforming Rwanda into a modern, prosperous economy.

One might imagine Rwanda to have a much smaller pool than Singapore of qualified bureaucrats. Yet Rwanda’s government administration has a well-run program aimed at attracting highly educated members of the country’s diaspora. High-level public servants are generally articulate, bright and often Western-educated. Rwandan embassies overseas offered many disapora Rwandans appealing opportunities back in their home country. Nowhere is the effect of this policy seen more clearly than at the central bank. Claver Gatete, the bank’s governor and former economist and statistician at the University of British Columbia, heads a team of economists on a par with central bankers in much more economically advanced countries.

Overall, Rwanda’s governance and economic environment has improved tremendously in the past decade. Rwanda ranks 66th on the 2010 Corruption Perceptions Index published by Transparency International—better than Italy or Greece. This marks a major improvement from Rwanda’s 102nd and 89th rankings in 2008 and 2009, respectively. The country has state-of-the-art legislation on public procurement, copied from the guidelines of the United Nations Commission on International Trade Law.

Moreover, unlike most of its neighbors, Rwandans take transparency seriously. All tenders above one million Rwandan francs (around $1,700) must be advertised in two major newspapers, with clearly defined selection criteria stated. Interested firms have thirty days to submit their bids (45 days in case of international tenders), which are then evaluated by committees following strict guidelines regarding potential conflicts of interest. Conflicts of interest are not a laughing matter in Rwanda these days. Unlike in most other African countries, government officials—including cabinet ministers—can be banned from politics and sent to prison for failing to disclose significant conflicts of interest.

All this helps to explain why, in 2012, Rwanda ranked 45th on the World Bank’s Doing Business report. Starting a business in Rwanda involves two fairly simple procedures, takes only three days, and costs less than 5 percent of the country’s per capita income. Consequently, Rwandan entrepreneurs can start businesses more easily than counterparts in Ireland, Denmark or Finland. No wonder that in 2010 the World Bank classified Rwanda as the world’s top reformer in improving its business environment.

These improvements are due to the unique combination of a clear sense of direction embraced by President Kagame’s administration and the technical competence to execute the necessary reforms. The government knows what it wants and is willing to learn and experiment in order to find policies that work. A good example is an extensive program of land registration currently under way with support from the UK’s Department for International Development and the Swedish International Development Cooperation Agency. The aim is to progressively formalize all land property claims, with 70 percent of all land titles to be issued by 2013. The program started with a pilot in 2008, covering only a handful of the 416 sectors (the smallest administrative units) in the country. With the pilot’s success, the government—together with the donors—moved to scale up and extend formal property titles to the whole of Rwanda. In the same spirit, the Rwandan government first tested and then decided to scale up programs providing the population with health insurance and other forms of social protection.

Rwanda’s economy was growing at rates close to 10 percent before the global economic downturn of 2008, and it is difficult not to notice the vast amount of construction and development in and around Kigali. Inyange dairy factory, opened in 2010 in Masaka on the outskirts of Kigali, is equipped with state-of-the-art industrial machinery from Germany and Sweden. With an on-site staff of only 89 people, Inyange is the country’s largest supplier of pasteurized and UHT-treated milk, yoghurts, mineral water and juice drinks. It is eager to expand into neighboring countries, most importantly the Democratic Republic of the Congo.

Sights like the Inyange’s factory can lead one to wax overly optimistic about the future of the country. Singapore made the transition from Third World to First in one generation, but despite its dynamism and radical reforms, Rwanda is unlikely to do the same. Even after 15 years of solid growth, it remains very poor—especially outside the capital city. GDP per capita is just $522 and over 80 percent of its labor force is still employed in subsistence agriculture.

A cursory look at a map reveals the key difference between Singapore and Rwanda. While Singapore is situated in a prosperous neighborhood with access to sealanes aplenty, Rwanda is landlocked, surrounded by some of the least reliable, most dysfunctional countries in the world. Corruption levels in Uganda and Tanzania are staggering: the Democratic Republic of Congo is in a state of seemingly permanent civil war; and Burundi is an economic basket case. With neighbors like these, Rwanda’s remarkable economic reforms and good governance just might not be enough to lift it from poverty.

Transportation costs provide a good example of why it might not be quiet enough. Anyone shopping for basic consumer goods in Kigali recognizes this burden, which accounts for more than 40 percent of the total value of imports. Transport costs are not only a problem for consumers but also directly impede the ability of Rwandan entrepreneurs to reach international markets. A study by the Rwandan Ministry of Trade and Industry reveals that in order to reach the port in Mombasa, Kenya, some 900 miles from Kigali, a truck driver must pay an average of $864 in bribes, stop at 36 different roadblocks and navigate ten weight bridges. The journey used for the study—involving a tea shipment of two containers—took more than 93 hours.

Rwandans are discussing various initiatives to deal with this problem, including a railway to Dar es Salaam, one-stop border points with neighboring countries and even a system of electronic toll collection within the whole of the East African Community. Yet there is little Rwandans can do by themselves to reduce transport costs; no matter how well governed their country might be, it is small, poor and has little international influence in the region to overcome the ubiquitous predatory habits in neighboring countries.

 Scale is another problem. As good as certain sectors of the Rwandan economy are, skills and human capital are in limited supply. Most visitors notice that service in hotels and restaurants is frustratingly slow and often incompetent. More seriously, companies report having serious problems finding qualified candidates for more demanding job positions. Even those with university degrees disappoint due to the sorry state of higher education in the country.

Apart from the education system, two factors explain the shortage of skilled labor. First, the 1994 genocide was not indiscriminate; it targeted the Tutsi population, which accounted for the vast majority of the urban educated elite. A whole generation of educated Rwandans disappeared almost overnight, and their skills are now sorely missed. Second, while the government has been successful in attracting talented diaspora and other Rwandans to work for various government agencies, this has been a mixed blessing. On the positive side, the government has become more competent and dynamic; on the negative side, the program has lured many high-skilled Rwandans away from a talent-starved private sector.

There are no obvious solutions to this problem. Spending more on education is unlikely to help, since the absent skill sets are culturally tacit in nature, involving, for example, independent or critical thinking or experience in understanding the nature of business markets. To illustrate the latter deficit, many Rwandan businesses do not grasp the idea of bulk discounts; indeed, they tend to charge premia for larger orders. Here the developed world can help from the sidelines by relaxing existing visa restrictions for Rwandan students, and by facilitating exchange and internship programs for both Rwandan students and young professionals—as well as for Westerners who would like to spend time working in Rwanda. Carnegie Mellon University’s recent decision to open a master’s program in information technology in Rwanda, scheduled to enroll the first forty students in the fall semester of 2012, is an important step in the right direction.

Another important bottleneck to Rwanda’s economic growth is energy. Rwanda’s grid currently runs to a miniscule capacity of 75 MW. After sunset most of the country, with the exception of Kigali, becomes eerily dark. This is not surprising given that electricity costs around 18 cents per kilowatt-hour, much more than in the West. (By comparison, the price is about eight cents in Virginia and 14 cents in New York City.) The government plans to increase capacity more than tenfold by 2017, but it will need help. A new power plant, possibly using the sources of methane in Lake Kivu, will likely depend on Western or Chinese donors for more than 40 percent of its construction budget.

Rwandan growth is further hampered by certain policies that could be fixed with relative ease, such as the tax system. With an 18 percent VAT rate, a 30 percent corporate income tax rate, a progressive personal income tax and various excise taxes, Rwanda’s tax structure looks remarkably similar to those of typical industrial countries. The key difference is its narrow tax base. Most of the population, working in subsistence agriculture, cannot be taxed at all. Thus, roughly 80 percent of the total revenue raised from corporate income tax comes from only about a hundred companies based mostly in Kigali. So despite reasonable tax rates, the overall tax burden on formal businesses is very high due to a combination of a lack of loopholes and the Rwandan culture of compliance.

Moreover, the administration of taxes is draconian: Rwanda’s VAT is payable upon invoice, not upon the receipt of actual payment, leading to cash-flow problems especially for smaller companies. The government is serious about enforcement, too; it imposes prohibitive penalties on non-compliance. For instance, if a VAT payment is delayed only by a day, the fine can reach 100 percent of the tax liability.

By its own admission, the Rwandan government needs to revisit its tax system. A recent study by the Ministry of Finance reports that the government is looking at examples of countries that have successfully introduced a flat tax and boosted their growth rates as a result. But given the small size of the economy, the volatile neighborhood and poor infrastructure, one could argue for going further than the flat-tax nations of Eastern Europe. One could make an infant-industry case for an extended tax holiday for all investors above a certain level of commitment, expressed as a function of monetary volume and time. One could also, perhaps, make a case for flipping the old colonial model. The Rwandan government could form a joint stock company with itself as the majority shareholder, offering bonds to foreign investors (including national governments) in Rwandan infrastructure and industry. Investors’ fellow nationals would get preferential treatment for large contracts over a specified period of time.

In 2011, the legacy of the 1994 genocide is still painfully present in Rwanda. Without any doubt, that visit to hell has played a key role in creating an atmosphere of unity and cooperation in contemporary Rwanda. At the same time, this traumatic experience has also instilled no little ambient fear. Many are reluctant to express their views and especially to be critical of the government. Some observers blame Kagame’s authoritarian style of leadership for this, but it appears that, for the time being at least, many Rwandans are also scared of political freedom and freedom of expression for the instability they might trigger. That fear can hinder economic development if it translates into a general reluctance to plan ahead or take risks, especially in a global economy that rewards creative and critical thinking.

In Singapore, Lee Kuan Yew served as Prime Minister for 31 years and has retained considerable authority long after his formal retirement. Paul Kagame, however, plans to leave the Rwandan presidency in 2017 after two terms. Regardless of what one thinks of the man, it is clear that many of Rwanda’s achievements are mainly his doing. Kagame stands as a textbook demonstration of the oft-forgotten truth that good governance is just as important as fair and democratic elections. The future of Rwanda hinges on the question of whether good governance, low corruption and an encouraging narrative of economic success can long endure beyond Kagame’s presidency. Sometime after 2017, we will find out.